Financial Crisis by SUBHAYU DAS

8/9/2019 Financial Crisis by SUBHAYU DAS

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FINANCIAL CRISIS

Presenter Names-Semanti Ghosh

Sayani Bose

Arijit Chatterjee

Avik Banerjee

Sayantan Ghosh &

Subhayu Das

Project designed by Subhayu Das(IILM BS)KOL


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HOW financial crisis started


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Three-Phase Crisis ...

Phase 1-

It occurred from Aug 2007 February 2008, with difficulties at

overstretched financial intermediaries Countrywide, Dillon Reed

(US), IKB (Germany), Paribas (France), Northern Rock (UK)

Phase 2-

The second phase of the crisis occurred from March 2008 October

2008, following the near collapse of Bear Stearns & Insurance costs

in the CDS market increased.

Phase 3-

The third phase of the crisis occurred from Oct 2008 present,

beginning with bankruptcy at Lehman Brothers.


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Why this financial crisis startedand became systemic?

* Easy credit condition

* Financial innovation & complexity

* Subprime lending(mortgage loan)

* Commodity bubble & Systemic crisis

* Boom & collapse of the shadow banking system

* Over leveraging & role of economic forecasting

*Degranulation & systemic crisis


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Different issues reflects effect onfinancial crisis(Background player)

1.Bank issue: 1.When bank run progresses, it encourages more

withdrawal by customers resulting in bankruptcy.

2. If all the banking capital in a country is wiped

out then it is systemic banking crisis which leads

to recession.

2.Tax revenue related problem

3. Natural calamities

4. Political Issue

5. Inflation

6. Liquidity problem


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Why Wall street is facing sweet chin music


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THIRST FOR KNOWING......

1. How will the crisis affect us?

2. How much could poverty increase ?

3.What is the role of the multilateral system duringthis crisis?

4. What is the Bank doing to help the region fight

the crisis?

5. The Banks investments have suffered because

of the crisis. How could this affect your lending?

6.What are our expectations for 2009?


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Way out of this crisis..

~ Increasing money supplies to avoid a deflationary spiral

~ Shadow banking system should be expandedlyregularized

~ Rate of pay of top executive should be reduced to acertain extent thereby restricting leverage

~ Break up institutions that are To big to fail to limitsystemic risk.

~ Reinstate the separation of commercial(depository) &inv. Banking established by the Glass Stegall Act in1933


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Affected nations & reasons....

Dark Red: Countries in official recession (two consecutiventries quarters)DarkOrange: Countries with economic slowdown of more than 1.0%

Light Orange: Countries with economic slowdown of more than 0.5%

Pink: Countries with economic slowdown of more than 0.1%

Blue: Countries with economic acceleration

(Between 2007 and 2008, as estimates of December 2008 by the International Monetary Fund)

Gray: N/A


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Secret of survival????????

Some countries suffering 80-100% less then united state?its true

China-They mainly rely more on domestic demand .They are

sitting on a mountain of cash due to their export power.

Brazil-They take advantage of trade agreement and foreign

Direct investment from India & China.

Iran-Iran does not trade with United States. They provide oil

to other countries.

The united Arab Emirates- Dubais free trade zone, exalted

commercial real estate market, and financial services make it an

international powerhouse.


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What others say.....


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Problems in Latin America's exchangerate & reserve

2.9

2.95

3

3.05

3.1

3.15

3.2

3.25

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

Exchange Rate in Argentina

(ARS per USD)

Source: JP Morgan

1.3

1.5

1.7

1.9

2.1

2.3

2.5


Exchange Rate in Brasil

(BRL per USD)

Source: JP Morgan

400

425

450

475

500

525

550

575

600

625


Exchange Rate in Chile

(CLP per USD)

Source: JP Morgan

1400

1600

1800

2000

2200

2400

2600

2800


Exchange Rate in Colombia

(COP per USD)

Source: JP Morgan

9.5

10

10.5

11

11.5

12

12.5

13

Jan-06 Jul-06 Jan-07 Jul-07 J an-08 Jul-08

Exchange Rate in Mexico

(MXN per USD)

Source: JP Morgan

2.5

2.7

2.9

3.1

3.3

3.5


Exchange Rate in Peru

(PEN per USD)

Source: JP Morgan

Country 2007 2008

Argentina 85.33 85.32

Brazil 21.57 23.96

Chile 66.08 40.93

Colombia 26.39 25.44

Ecuador 59.89 32.10

Mexico 45.08 38.29

Peru 20.97 26.89

Venezuela 27.29 28.85

Source: Central Banks and Market Forecasts

Short-termExternal Debt / International Reserves (%)


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In a nutshell:

1. The crisis will adversely affect the region as a whole

2. Social programs need to be protected in the region to avoid

political disruptions

3. financial institutions need to be flexible and adaptive to a

continuously changing environment & accept new

system(eg-multilateral system)

5. Uncontrolled loan & wrong fiscal policy led to this crisis

4. There have been three unique features of this crisis

securitisation, leverage and transmission .

Financial Crisis by SUBHAYU DAS

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